Category: Economics

I received this image as a forward in WhatsApp from a friend who felt that I should get some printed like this for myself.

I did not think that this would serve any purpose for me but, on seeing it as a forward from me, another friend who has the necessary infrastructure of an office with staff suggested that he order for a hundred cards with my name and with some modifications.

I agreed and when it gets printed, I shall write another blog post on it.

In the meanwhile, the “Unemployed” description on the card took me to one of my favourite exchange of letters in The Economist between a reader and The Undercover Economist.

The Letter.

AUGUST 6, 2005

Dear Economist,

My son-in-law has been unemployed for a couple of months now. As far as I can make out, he’s enjoying a PlayStation lifestyle while being supported by the state and by my daughter, who has had to find a temporary job. What concerns me is that he’ll get used to this. Should I tell my daughter to apply pressure by quitting her job?

Yours sincerely,

Godfrey Pickens, via email

The Response.

Dear Mr. Pickens,

The issue here is whether your son-in-law’s preferences will change over time—will he “get used” to a life of leisure, and so be less likely to work?

There are two competing views here. One is that he will become hooked on leisure (the welfare trap hypothesis) and will work less in the future, even if his wife quits her job. The other, equally plausible in theory, is that he will become addicted to the extra income provided by his wife’s new job, and if she quits, he will go on to work harder than before.

Such competing hypotheses have been hard to test in the past. But economist John Kagel has succeeded in running a series of experiments that shed light on the matter.

Kagel first forces his subjects to work for their income. Then, for a while, he provides them a substantial unearned income—a kind of welfare, if you will. Unsurprisingly, they slack off at once. Later, he withdraws the welfare and observes whether they work more or less than before welfare had ever been paid. The answer: the interlude on welfare makes very little difference.

This implies that your daughter should keep working for a while and see what happens. No harm will result. The only question for you is whether Kagel’s findings apply to your son-in-law.

Kagel’s subjects were rats. Do you think the parallel with your son-in-law is close enough?

I have suggested this topic for this week’s Friday 2 on 1 Blog Post where Shackman and I write on the same topic. Please do go over to Shackman’s blog to read what he has to say on the topic. Thank you.

This Friday’s 2 on 1 blog post’s topic has been chosen by Shackman. I am sure that the recent spurt of anti Obama Care developments in the USA must have weighed heavily on his mind when he chose the topic. Being an Indian, I am concerned with what happens in India where we have a long way to go to extend full health care benefits and I use every platform to propagate my views which are not original but, practical any way.

Regular readers of my blog posts know that one of the credos by which I communicate is “Why reinvent the wheel?” My politics and economics is conditioned by A F Hayek. I would simply quote him from two sources to buttress my view that Health Care Is A Right that should be given to every human being.

“All modern governments have made provision for the indigent, unfortunate, and disabled and have concerned themselves with questions of health and the dissemination of knowledge. … There are common needs that can be satisfied only by collective action and which can be thus provided for without restricting individual liberty. It can hardly be denied that, as we grow richer, that minimum of sustenance which the community has always provided for those not able to look after themselves, and which can be provided outside the market, will gradually rise, or that government may, usefully and without doing any harm, assist or even lead in such endeavours. There is little reason why the government should not also play some role, or even take the initiative, in such areas as social insurance and education, or temporarily subsidise certain experimental developments.”(The Constitution of Liberty of 1960 Pages 257 and 258.)

“There is no reason why in a society which has reached the general level of wealth which ours has attained [NW note: Hayek was writing not in prosperous post-war America, but in war-torn, austerity-ridden Britain in 1943] the first kind of security should not be guaranteed to all without endangering general freedom. …. [T]here can be no doubt that some minimum of food, shelter, and clothing, sufficient to preserve health and the capacity to work, can be assured to everybody. … Nor is there any reason why the state should not assist the individual in providing for those common hazards of life against which, because of their uncertainty, few individuals can make adequate provision. “Where, as in the case of sickness and accident, neither the desire to avoid such calamities nor the efforts to overcome their consequences are as a rule weakened by the provision of assistance – where, in short, we deal with genuinely insurable risks – the case for the state’s helping to organize a comprehensive system of social insurance is very strong. There are many points of detail where those wishing to preserve the competitive system and those wishing to super-cede it by something different will disagree on the details of such schemes; and it is possible under the name of social insurance to introduce measures which tend to make competition more or less ineffective. But there is no incompatability in principle between the state’s providing greater security in this way and the preservation of individual freedom. “To the same category belongs also the increase of security through the state’s rendering assistance to the victims of such ‘acts of God’ as earthquakes and floods. Wherever communal action can mitigate disasters against which the individual can neither attempt to guard himself nor make provision for the consequences, such communal action should undoubtedly be taken. “There is, finally, the supremely important problem of combating general fluctuations of economic activity and the recurrent waves of large-scale unemployment which accompany them. This is, of course, one of the gravest and most pressing problems of our time. But, though its solution will require much planning in the good sense, it does not — or at least need not — require that special kind of planning which according to its advocates is to replace the market.

“Many economists hope, indeed, that the ultimate remedy may be found in the field of monetary policy, which would involve nothing incompatible even with nineteenth-century liberalism. Others, it is true, believe that real success can be expected only from the skillful timing of public works undertaken on a very large scale. This might lead to much more serious restrictions of the competitive sphere, and, in experimenting in this direction, we shall have to carefully watch our step if we are to avoid making all economic activity progressively more dependent on the direction and volume of government expenditure. But this is neither the only nor, in my opinion, the most promising way of meeting the gravest threat to economic security.

“In any case, the very necessary effort to secure protection against these fluctuations do not lead to the kind of planning which constitutes such a threat to our freedom.”(The Road to Serfdom, Pages 148-149)

Please go over to Shackman’s blog to see what he has to say on the subject. Thank you.

There is a remarkable answer to this question by a responder in Quora. I find it quite logical except that the idealists of the communist movement overestimated the human factor. If human beings behaved as they morally ought to, perhaps communism would have worked.

I copy paste the response to make it easier for my readers to get the gist of the response.

“Yes.

Communism works—and has long worked—on the level of family. In a “normal” family, parents give to each other and to their kids according to their capacities and skills, often without expecting anything in return. Kids receive care according to their needs, often not giving anything in return. There’s an implicit promise that they will switch the roles when the parents get old and sick, and the kids become breadwinners. “From each according to his ability, to each according to his needs” is a Communist principle.

The system often malfunctions. Negligent parents and thankless kids are the stuff of a zillion tales, stories and soap operas. Amazingly, however, the arrangement reproduces itself generation after generation. It also inspires a powerful dream of extending the arrangement to the entire society. Every attempt to do it has down like a lead balloon—yet the dream resurfaced generation after generation.

Much of the Communist principle is also reproduced in faith-based communities (e.g., monasteries) and altruistic or idealistic organizations. Relief workers and their backers who distribute food and necessities in areas of distress help people out of charity. The recipients are not expected to give something back, apart from the implicit expectation that they in turn will lend a hand to others in need when the occasion arises.

The cartoon below is from a Soviet satirical magazine in the 1970s. The wife says to her husband: “You need to find a second job. Our kid has grown; he’s got a lot of advanced needs”. The reluctance of younger Soviet generations to sacrifice themselves in accordance with to the austere commandments of Communist ideology caused much chagrin to Soviet rulers during the sunset years of the USSR.”

Young Pravin who studied Opportunity Cost just a few years ago has once again bowled a googly or for my American readers, pitched a curve ball!

I suspect that he has done that because he has read something from a spiritual book which he quite regularly reads, to throw us old bandicoots like Shackman and me off balance. It will be interesting to see what he comes up with eventually.

As far as I can see, since the alternative to being humans is being apes or angels, and the likelihood of the latter option being available, remote, the opportunity cost of being humans now is that we have lost all ability to be natural, like apes or even our own ancestors. And since we have lost that ability, we have become unnatural in our whole approach to life. We have become increasingly dependent on so called logical thinking and have been giving up or ignoring our intuition resulting in all kinds of problems that other living beings do not seem to have.

Let me illustrate with a simple example. If I give something to my dog she will sniff at it and instinctively know whether it is edible or not whereas if I give something to a human being he will now google to find out whether it is alright to eat or not. Many things that my grand mother knew as handed down knowledge is now lost because we have got educated in a system that condemns such knowledge and glorifies so called logical and scientific information gathering. Even as late is the middle of the last century, we were very different as human beings than the specimens that we have now become.

Nothing explains is better than this following meme that has been doing the social network rounds for quite some time now. First, we survived being born to mothers who smoked and/or drank while they carried us.

They took aspirin, ate blue cheese dressing, tuna from a can, and didn’t get tested for diabetes.

Then after that trauma, our baby cribs were covered with bright coloured lead-based paints.

We had no childproof lids on medicine bottles, doors or cabinets and when we rode our bikes, we had no helmets, not to mention, the risks we took hitchhiking.

As children, we would ride in cars with no seat belts or air bags.

Riding in the back of a pick up on a warm day was always a special treat.

We drank water from the garden hose and NOT from a bottle.

We shared one soft drink with four friends, from one bottle and NO ONE actually died from this.

We ate cupcakes, white bread and real butter and drank soda pop with sugar in it, but we weren’t overweight because WE WERE ALWAYS OUTSIDE PLAYING!

We would leave home in the morning and play all day, as long as we were back when the streetlights came on.

No one was able to reach us all day. And we were O.K.

We would spend hours building our go-carts out of scraps and then ride down the hill, only to find out we forgot the brakes. After running into the bushes a few times, we learned to solve the problem.

We did not have Playstations, Nintendo’s, X-boxes, no video games at all, no 99 channels on cable, no video tape movies, no surround sound, no cell phones, no personal computers, no Internet or Internet chat rooms……….WE HAD FRIENDS and we went outside and found them!

We fell out of trees, got cut, broke bones and teeth and there were no lawsuits from these accidents.

We ate worms and mud pies made from dirt, and the worms did not live in us forever.

We were given BB guns for our 10th birthdays, made up games with sticks and tennis balls and although we were told it would happen, we did not put out very many eyes.

We rode bikes or walked to a friend’s house and knocked on the door or rang the bell, or just walked in and talked to them!

Little League had tryouts and not everyone made the team. Those who didn’t had to learn to deal with disappointment. Imagine that!!

The idea of a parent bailing us out if we broke the law was unheard of. They actually sided with the law!

This generation has produced some of the best risk-takers, problem solvers and inventors ever!

The past 50 years have been an explosion of innovation and new ideas.

We had freedom, failure, success and responsibility, and we learned HOW TO DEAL WITH IT ALL!

You might want to share this with others who have had the luck to grow up as kids, before the lawyers and the government regulated our lives for our own good.

And while you are at it, forward it to your kids so they will know how brave their parents were.

Kind of makes you want to run through the house with scissors, doesn’t it?!

And just to reinforce my argument that we have gone bonkers, I take my readers to this very interesting and illuminating article on the idiosyncrasies of the modern humanbeing.

Pravin has suggested this week’s topic. You can see what the other writers of the LBC have to say in their respective blogs. Maria, Pravin, Ashok and Shackman.